According to Forbes, an anonymous user on the prediction market Polymarket won $400,000 by betting that Venezuelan president Nicolás Maduro would be out of power by the end of January. The user placed $20,000 in bets just hours before a reported U.S. military operation to capture Maduro was ordered, raising accusations of insider trading. In response, Representative Ritchie Torres proposed a bill on Monday to prevent elected officials and government employees from trading on these platforms. Meanwhile, Polymarket’s rival Kalshi supports the bill and bans insider trading, while Polymarket’s founder Shayne Coplan has publicly supported the use of inside information. Adding to the media angle, Polymarket just announced an exclusive data partnership with Dow Jones, and Kalshi has similar deals with CNN and CNBC.
The Godfather’s Argument
Here’s the core of the debate. Robin Hanson, the economist who inspired these markets, thinks this so-called “insider trading” isn’t just okay—it’s necessary. His logic is pretty straightforward. The entire point of a prediction market is to aggregate information. So, if you have better, non-public information, you should trade on it. That’s how you get paid for contributing that valuable intel to the collective price. Hanson basically frames these platforms as information institutions, like news outlets or think tanks. But instead of paying a staff of analysts, you pay anyone who brings accurate info to the table. From that view, the mystery Maduro trader was just doing his job.
The Legal And Trust Quagmire
But there’s a massive legal headache here. Kalshi’s co-founder points out they’re regulated by the CFTC as a financial exchange. In that world, using material non-public information is fraud, full stop. The logic is about fairness and trust: if people think the game is rigged, they’ll stop playing. And that’s a real risk. If you’re a regular user, why would you bet your money against someone who might know the outcome? It feels like a sucker’s game. The legal eagles quoted in the article say prosecuting this is tricky, but the principle is clear in traditional finance. Polymarket’s stance is a radical departure from that.
A Feature, Not A Bug?
Some proponents, however, double down. They argue that the awareness that insiders might be trading should make everyone else more careful, theoretically leading to more accurate prices. It’s a Darwinian view of market efficiency. And Hanson takes it even further, suggesting that betting money on a belief is a form of protected free speech—it communicates conviction in a way mere words can’t. It’s a fascinating, libertarian-tinged perspective. But it clashes hard with the need for these platforms to maintain user trust and navigate existing financial regulations. You can’t build a lasting market if 90% of your users feel like they’re the mark.
An Existential Fight
This insider trading debate isn’t academic. It’s existential for prediction markets. They’re already fighting state-level battles trying not to be classified as gambling, especially for sports outcomes. Now, their own founders can’t agree on a core rule. Are they financial markets or information markets? The partnerships with Dow Jones and CNN show they want to be seen as serious info providers. But if they encourage insider trading, they undermine the very trust that media brands rely on. The analyst in the article nails it: yes, insiders get us info faster. But if insider trading is encouraged, why would anyone bet? That’s the billion-dollar question they haven’t answered yet.
